tv Bloomberg GO Bloomberg October 20, 2015 7:00am-10:01am EDT
he may announce $46 billion in deals and investments. and canada, o canada -- a stunning election up north. the liberal party sweeps conservatives out of power. stephanie: from hong kong to london to right here in new york city, you are watching "bloomberg ." i'm stephanie ruhle. david: i'm david westin. it is tuesday. we have more coming up. helping us kick things off is chief barclays ceo, now executive at atlas merchant, bob diamond. great to have you here. xi jinping is at buckingham palace this morning. there is the queen going down through the color guard. xi yet.t see president
this is a big visit, stephanie. stephanie: it is a big ceremonial visit. will it ben is, anything more than pomp and circumstance and an elaborate photo opportunity? david: i think david cameron hopes some cold hard cash will be online for some business deals. we will see. word --art with first not the vonnie quinn -- hold on, we're going to breaking news. are getting some sticky headlines on yum! brands. it is indeed going to separate into two publicly traded companies. last week we told you they added keith meister to its board. it is going to now. keith meister has said this could add as much as $16 a share to yum! brands share price or by $7the value of yum!
billion. yum! is putting out this release and saying it does not have incremental operational costs and does not expect to have those costs. it will be led by create on completion of separation. we are just getting the details now. bloomberg broke this story early this morning at about 12:30 a.m. we are getting official confirmation that young! -- that two plans to split into independent companies. the chinese division will be one, everything else will be the others. now we go to vonnie quinn. vonnie: in canada, the former prime minister -- the ouster of the former prime minister has ended a decade of conservative rule. seatsrty gained about 184 , the biggest political comeback in canada is history. justin trudeau is the former -- is the son of former prime minister pierre trudeau. he argued that canada needs
deficit spending to get the economy going. the saudi's and other allies want americans to help them improve their defenses. congress could still block a ship agreement. the fbi is investigating a hacker's claim that he broke into the cia director's private e-mail. hacker says documents posted online came from john brennan's aol account. stephanie: any day now, credit suisse will announce plans to restructure major operations and streamline its management structure. this on the heels of a major shakeup in my alma mater, deutsche bank. bankmakes another undergoing massive strategy changes. atopiamond, you once sat
barclays. what is the outlook for european banks? bob: just recently there has been some numbers that have come out. if you look at the core of the european investment banks, thinking of investment banks before commercial banks before the crisis, the earnings from the big banks -- parkways, deutsche bank, credit suisse -- was about equal to that of u.s. banks. now it is double u.s. versus europe. there are challenges for many of the new chief executives, and right at the very front of those challenges is getting the return on capital above the cost of capital on a consistent basis and getting investors to believe that they can do it on a consistent basis. stephanie: how can they went cost-cutting seems to be their core competency for the last five years? not sure it has been.
if you look at the numbers from are a and citi u.s. banks doing better at cutting costs right now. my sense is that the ceo of deutsche bank has cost and efficiency very high on his program. david: is that when you would expect by the european banks? more cost-cutting? john cryan pointed out in his communication that it is about efficiency as much as it is people. the legacy technology, the legacy systems -- when you think about technology, you have to think about making operations more efficient. it will probably cost some heads over time at the beginning, but it probably increases hiring to focus on that. but it is really about efficiency, technology, and legacy systems. --is also about the getting
about getting the business model sustainable. one of the businesses we invested in recently is a standard broker-dealer. --y do something as repo u.s. treasuries, mortgages, haircuts. most of the big banks, u.s. and 60%,e, are down 40%, 50%, because of the regulatory bite of the leverage pools. stephanie: we are seeing a lot of standalone boutiques suffer acause if they are only narrow vertical and they cannot offer financing -- if they do theyffer balance sheets, are starting right now. bob: that is certainly not our experience. david: could that be a disaggregation where you have retail banking, more traditional banking, and some of the other higher risk, higher return
ventures being put into boutiques? bob: there are two different things there. in the capital rules, if you recent barclays' decision to sell their private u.s., itusiness in the is hard to run a business that is performance-based compensation if you're under the e.u. directives of compensation. that was regulatory driven. if you look at the levels of capital required in the u.s. for the foreign banks, they are dramatically different than before the crisis. prior to the crisis, the amount of capital that deutsche bank or barclays or ubs or credit suisse we keep in their u.s. business would be a function of the size and complexity of that business, but would also be flexible. as the business grew and shrunk, the capital could move around. today there is a much higher required in the
u.s. business regardless of the size of the business. and it is not flexible. it is ring fenced. it has changed the economics for the foreign banks in the u.s., and i do not want to say they are struggling with it, but what exactly is the right business battle -- the right business model for the foreign banks? stephanie: historically every few years you watch rbs, ubs, deutsche bank over higher -- over-hire, then it flops, and they leave. do you think the structural changes will drive them out of the u.s. markets forever? that issome cases probably the right business decision if they have a week business proposition. but some with a strong business model have to adjust to the hair capital and the stringent leverage rules. i think that is still going on. i am biased, but do i think
barclays, with the quality of barclays capital and the lehman acquisition, should exit the u.s.? absolutely not. talkinge have been about you cannot cut yourself to success. if you are running barclays or deutsche bank or credit suisse, it sounds like the u.s. is not a great opportunity now. where would you go? bob: this is an incredible time to be investing in financial services. the buffer upon buffer of capital that is being applied is not going to end. as you both know, too big to fail -- the political leaders and the regulators in the u.s. and the u.k. and europe are not dealing with resolution and ways to, living will, allow larger banks to fail without creating systemic risk. rather, they will prevent too big to fail by buffer upon buffer of capital, separation of
risk from deposits. what does that create for an opportunity? an incredible entrepreneurial opportunity to build businesses. stephanie: does it make you concerned about shadow banking? while these banks are getting out of so many businesses, most private equity firms are growing. i think the people that use the term "shadow banking" use it in a pejorative way. stephanie: bob diamond is calling me stupid on tv. ready? bob: is coming from the big banks, not from stephanie ruhle. we are regulated by finn rough, bythe -- by finn rough -- the fcc -- by the sec. i think the regulators encourage growth below the level of the big interconnected banks. we have had at least a 20-year run leading up to the financial
crisis, of globalization, consolidation, bigger and more complex and more interconnected. there are a lot of parts of that that had been terrific and are really good for clients. but now there is an opportunity to build more entrepreneurial, smaller, simple business models. stephanie: is part of that because information is so available now? five or 10 years ago if you were the biggest bank, you had so .uch more information but now, due to technology, it is a more even playing field. what advantage to the banks really have? rapturehave developed technology. it is cloud-based and manages more forms of data. it is not particularly expensive to implement or to run. the big banks are dealing with decades of legacy technology and legacy systems. there is an opportunity to leapfrog for the new models. david: so the good news is we
have bob diamond with us for the entire month -- for the entire hour. but we have news from matt miller. matt: a $12 billion share buyback totaling $16 billion for you tx from 2015 to 2017. this is a doubt company. it is one of the worst -- this is a dow company. it is one of the worst performers this year, down about 20%. hadcompany beat on eps, 1.61 versus 1.64. it missed big on revenue. revenuellion worth of versus $14.6 billion. they go ahead and buy back shares. david: as i said, we have bob diamond with us for the entire hour. what would you like us to ask him? tweet us your questions.
to sell its -- sandisk has market capital of $15 billion and a deal could be reached this week. and the new apple tv set-top box goes on sale next week. tim cook made the announcement "the wall street journal" conference in southern california. apple has sold tv devices before, but for the first time developers will be encouraged to make apps for it. david? david: now to global go. as we have been talking about chinese president's asian paying makingident xi jinping his visit to london, caroline hyde is outside buckingham palace per the have been watching her all morning long standing there with all the crowds. what we have been talking about is how much of this is pomp and circumstance and how much is good, hard business going on? is economic really bank for the buck.
-- economic bangs for the buck. you can hear the ceremonial ,hots to welcome xi jinping $446 billion worth of deals set to be done in these four days alone. we talk about the energy industry, money coming in from china to build nuclear reactors -- not just finance them, but design and build them. this is really front and center because we are the dominant force when it comes to foreign exchange trading. 41% of the market is here in the u.k., but they are not number one when it comes to yuan trading, to the renminbi. they want to take that away from singapore, hong kong, and become the european gateway to chinese deals. already we have the central bank of china, the government of china selling you want denominated debt this week in the u.k. david: one last question. have they put behind them all
the problems that they had over the dalai lama? a couple of years ago there was a frosty relationship between camera -- between cameron and xi jinping. is that behind them now? caroline: there is still some concern about the human rights policies, the concerns about what is being done in china at the moment here it and while we see all the celebration here, we see all the supporters behind-the-scenes the scenes and some of the other areas. we are seeing people actually theng to put against government, trying to protest this week as well, saying that the u.k. government is not doing enough to fight the problems of human rights, of animal rights, and of steel prices being so low, the imports that we are getting in drowning out some 5000 jobs in the united kingdom. many of those feel that perhaps they are being ignored to try and boost the economy, boost the tide once again after 2012. we were really on the outside
theing in when we met with dalai lama, david cameron frozen out diplomatically because of that. now that is in the past. it is a beautiful day there. caroline hyde at buckingham palace in london. a major shakeup in banking across the world. many executives believe regulations are partly to blame. jamie dimon was here yesterday for an exclusive interview. here is what he had to say. jamie: they are exhausted. they are trying to implement the job that they have been given by legislators. they know thereare too many rules and they want to make it simpler. over time it will probably happen, but not the next couple of years. stephanie: i want to welcome megan murphy to the table. bob diamond, ceo of atlas
merchant, is still with us. jamie dimon says we are exhausted by it, the regulators are exhausted by it. he said privately, are we really going to get something done? , sure, therelike are all these announcements and decrees we are going to do this. what he says i do not know if there will be any of this implemented in my career or my lifetime. behind the scenes, regulators are saying the same thing. is all of this kind of a joke? he has an incredible business. it is not a joke. there are other banks that have done less well. it could have been with the mass regulation, whether it is on the u.s. or the european side. we saw a massive shakeup at deutsche bank. see mostontinue to european banks take a hard look at how they can survive and where we have a much bigger focus on capital, regulatory on
risk, clamping down on that business -- i think jamie is an alternate. i do not think it is a joke for any of those banks, and we will see who can survive that and develop a business model that can protect and good -- and get good margins. stephanie: how does smart -- they have not increase what they pay their employees. you were talking about a brown suit and a clipboard, walking into jpmorgan or goldman sachs saying i am here to regulate you. how will that actually happen? bob: i think the difference today from two years ago is while we do not know the details of every single thing at dodd-frank -- anyone who said directionally we do not know where we are going would be silly. it is time to get on with it. in your interview with jamie dimon, one of his telling comments is that we just deal with it. i do think we have to deal with it.
directionally we have to know where regulation is going. business models will change. organization is a phrase i used to talk about the ring fencing of capital and other subsidiaries. i do not think that is going to go away. i think it is time to begin execution and implementation. david: i want to pin this down. do you think we are well along the way of knowing what the rules are? it seems that we are getting a new rule every week. stephanie: except that clinton wants to double down on them. megan: she wants to double down on some parts of it. would think that we are well along the way of -- bob: directionally knowing where they are. we will not see a lot of mystery on that. megan: i agree with that. suit with ae brown clipboard -- david: that was a little harsh.
the regulators, would we have found fx manipulation, many of the scandals that have emerged without the regulatory supervision? the answer is no. i go to the point that they may not be paid enough, there may be a talent gap, particularly in europe. but these people do a tough job. outmanned, outgunned, outspent. they are trying to regulate a business that shifts and changes at every opportunity. they are trying to interpret these rules. in some cases they have really uncovered things that were hurting consumers. bob, talking about the regulatory structure, there is a range of things that can be done. there can be civil fines all the way over to criminal. you had some experience in barclays with people going to jail. is your perception about the most effective way to regulate? bob: i think at
barclays, the pride we had in the culture that we had built was phenomenal. when it was clear that there were a few bad actors with reprehensible behavior, no one was more upset than the people who created that culture -- and i do not mean just senior management. but those bad actors should be dealt with. stephanie: every industry has bad actors. why hasn't the financial industry been able to change the narrative? candidates are going after wall street. when is that going to change? will it ever change? bob: one of the things that has certainly caught me by surprise two or three years ago, not just today, was the depth of anger against banks and bankers. more than that, it was against all banks and bankers. in our case, we felt that we did not take government money. we managed through the crisis.
there should be some credit for that. absolutely not. stephanie: people on the street do not know that. opto and we have to accept it. bob: and we have to accept it. reaction to the financial crisis has been much deeper, and it will take time to work out. stephanie: it is not actually time for a commercial, but the producers know that i am just going to let it rip right now. bob diamond, megan murphy staying with us. we will be back with more "bloomberg ." ♪
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their night started. we are getting our morning started in the same way. bob diamond is with us for the hour, along with megan murphy. good morning, tom. tom: we just talked with peter at deutsche bank. he believes we will have a gdp of 1.8%. i was stunned by his column that. 'sis is so far beyond lagarde new mediocre. you wonder with the canadian election, where we will be in november of next year. david: that sort of phenomenon helped drive trudeau into power. let's begin with the first word from vonnie quinn. hill, the capitol house is pitching for a speaker. republicans will be asking paul ryan if he has had a change of heart about the job. he discussed it during a weeklong recess. if he says no, party leaders
will ask speaker boehner to stay on until the end of the year. a cancer diagnosis has been linked to the fukushima disaster. are still workers there. and in south africa, a w mpt runner, oscar pistorius, has been released from prison and placed on house arrest. he was convicted of shooting his girlfriend in 2013. south africa's supreme court could still convict him of murder and send him back to prison. here is matt miller. ist: first off, amsurg making a purchase of team holdings. you can see it, more than $70 a share. shares willrket jump up to that premium. not a lot of movement, but the contract trading a little bit
lower. we are getting a ton of earnings news out. harley davidson, one of my favorite american companies, missed its expectations. it got $.59 a share. we were looking at $.78 a share. it also lower the amount of units of expelled -- it expected to share this year. it is lowering the margins it expects to earn this year, 16% to 17%, to 17% to 18%. we will speak with the ceo of harley davidson later. david: matt, the solution is you need to go buy a new harley. matt: i agree, and if i could just convince my girlfriend -- my wife -- stephanie: once you accept that she is your wife, by the way -- in most people's mines, those are just two people. david: we have lost control. tom keene is with us.
david: let's bring it up -- tom: let's bring it appear. howard davies of the london school of economics, iconic in regulation in the united kingdom. tom: he's just saying encourage everybody. .ob diamond, this is critical bankers and policymakers have to have courage. was with thehoward fsa when i first met him. tom: are you on good speaking terms with him? bob: yes.
he was one of the strongest regulators that i have had the pleasure of dealing with over the years. very strong. as i read the piece, he was talking about macro prudential regulation as opposed to going after bubbles, to step up and say we think there is a bubble here and we have to protect it. -- and we have to prick it. tom: what you need to do is a set of regulations to decrease the likelihood of bubbles. bob has dealt firsthand with this. bob: it is always a little bit of give and take. when the crisis first hit, i remember talking about the need to balance safer and stronger financial institutions with jobs and economic growth. this is almost an oversimplification. if you go too far, you impact
jobs and economic growth. one of the ones that is challenging banks today that falls right into that spot is the very strict limits on leverage. tom: that is right were i wanted to go. do we need to be more credit suisse like in our leverage? bob: we are doing it. some of it is good for the businesses that we are building. south street securities is a business that we invested in. for banks today with that limit on leverage, which is not risk-adjusted, businesses that are very safe and very high return, but big users of the balance sheet, need to be exited. tom: where are those businesses going to go? bob: they are going to more entrepreneurial models. megan: but do you see more risk in that? risk in sort of that type of movement? a tendencyk there is
when people talk about new models or shadow banking, they are not regulated. south street securities is regulated by finra and the sec. what is important is to allow broker-dealerf businesses and financial services businesses where they can be allowed to fail. what regulators and political leaders -- fail, allow them to take risk. if we do not have risk, we do not have an economy, jobs, innovation, entrepreneurship. megan: but when that risk becomes systemic -- stephanie: but look at jon corzine. he came from a place like goldman sachs, where they had extraordinary oversight and risk management. the risk level went down but it did not take the financial system. welcome to the financial crisis.
bob: this is where i started earlier, where too big to fail is not being addressed through living wills and innovation and recovery. it is being held with as categorizing larger, more interconnected banks, as political leaders will not allow another failure. think if barclays investment bank had a treating billion, 10 billion, some incalculable risk, that the british taxpayer, the global taxpayer, would be insulated even the sort of approach -- given the sort of approach that is being taken now. can we say that barclays investment unit is fully ring taxpayer has no -- bob: is there the regulatory tool kit that can prevent systemic risk if there are problems? yes, i think there is.
is there the political willingness to address living wills -- megan: are we there right now? bob: or has the decision been made, which i think it has, which is the better way to deal with large interconnected banks is offer upon buffer of capital, separation of risk from deposits, do not allow them in the commodities business, and turn them into -- they may be good earnings, but more utility like. so at every sip of the turn we will have more and more capital -- so at every step of the turn, we will have more and more capital. tom: canadian banking, u.k. banking, and what the ft's covered for years in u.s. banking -- is it better to have one on the bus regulator -- one regulator? bob: i think one of the things through dodd-frank and through the crisis that tim geithner
would say, most people on the regulatory side would say, is that we did not get to the simplification of the regulatory environment in the u.s. i do think it could be simplified. should it be just one, i think that is an extreme. but could it be simplified? absolutely. stephanie: if you look at what wall street does, they are depaul finders extraordinaire. given where -- they are loophole finders extraordinaire. the etf market now has underlying securities that are illiquid and the street candle longer provide a buffer in terms of liquidity. when we say we have tightened up the regulatory framework, the street finds around it -- finds its way around it over and over again. bob: i hear this all the time. dodd-frank, bulger rule, e.u. directive, independent commission on banking refinancing, do you think we have -- full or rule, e.u.
directive -- the volcker rule, directive from e.u., independent commission on banking refines and, do you think we have less regulation? the political leaders, not just the regulators, will ensure that we do not have too big to fail again. megan: is seven years since the height of the crisis. if we had a major calamity in one of the world's leading investment banks, there is no way the taxpayer -- stephanie: what could the calamity be at this point? they are not taking that much risk. megan: morgan stanley had huge bets in asia, we learned yesterday, which we did not know they had. i remember david at goldman 'schs, everybody balance sheet was affected.
bob: i am going to say it proudly. we never took government money at barclays. every quarter was profitable. we never had a fear of not having deposits. jamie it is interview with you, stephanie, yesterday said the same types of things. it is about the management. we are coming back to the same issue about, how do you protect the larger -- tom: cash on the balance sheet. thank you, tom. we have bob diamond with us for the rest of the hour. what would you like to ask him back up send us your questions on twitter. --next, distort the results historical results in the canada election. next on "bloomberg ." ♪
yum! brands has made it official. it was put off its china business into a separate publicly traded company. it has been in a sales slump in china because of food safety scandals and increased competition. has beatennologies estimates. it announced a 12 been dollar buyback. makes a widelogies range of products from jet engines to air conditioners and recently agreed to sell its helicopter unit to lockheed. verizon's third-quarter profit beat estimates. the company says revenue from wireless services was down 4%. itsl, verizon reaffirmed gross forecast. -- its growth forecast. david: 43-year-old liberal party leader justin trudeau, the son of the man who took over 40 years ago, won the majority in nal election.o
i believe he is the secondary is the second-biggest man ever to serve as prime minister of canada. stephanie: 43 years old. schatzker could have gotten that job. david: let's listen to what justin trudeau had to say last night. justin trudeau: this is what positive politics can do. this is what a positive, hopeful vision and a platform and a team together can make happen. canadians from all across this great country sent a clear message tonight. it is time for a change in this country, my friends, a real .hange pa david: you and i are old enough to remember pierre trudeau. peter jennings, who i worked with, love year trudeau. peter was canadian as well, and they were good friends. in a larger context.
what is the significance of canada and where it is headed and the different direction justin trudeau is likely to take it? bob: that is a great question. the impact of canada as an economy, how they manage through the financial crisis as an example, continues to gain credibility. countries arep of becoming an incredibly important economic block. i think this is pretty significant. and it is a different direction than harper -- megan: and we have had another example of this. we had the liberals running ahead. we were looking at a collusion government and they wanted an outright majority. i think that is something we need to take a look at. we have had it in the u.k., in the u.s. why are we getting it so wrong?
the only thing that stands out about this, it is time for change. that message is resonating across developed democracies in western europe and the u.s. what i find fascinating is, when you look at the stuff that trump says were some of the stuff that jeremy corbyn says in the u.k., the leader of the labour party, justin trudeau, there are so much of the elements that have the same thing, and what people are gravitating toward is the desire for change. change in whatever form it may be. this will shape the situation in the u.s. remains to be seen. the f 35 purchase of jets will play out. i am not sure there will be a -- e sale stephanie: does it surprise you when you return to the united states and when you look at ben carson, bernie sanders, donald trump -- the strides they have
imaginei cannot candidates like this having so much traction. this inhink we see primaries. i do not think this is particularly novel. we are going to see more anyidates, and we have expectation they could win the race in a primary. i think this is pretty standard. donald trump, people love the american businessman. that specifically is what hurt mitt romney. bob: uh -- i am having a hard time. says,nie: donald trump why not use the system to his advantage. where mitt romney and the industry he was in, took advantage of the system, and people flayed them for it. why is it different now yeah cap bob: -- why is it different now?
bob: i would not compare them. stephanie: jamie dimon was saying the cost of regulation, because of rules, it is difficult to be in south africa. you see it as a great investment opportunity. bob: the africa rising thesis is phenomenal. the size of the population, the amount of population that is 15 to 24 is almost exactly the size of the whole u.s. population. the leapfrogging of technology with mobile phones -- i was saying to david earlier, half of every mobile phone money transition made every year comes from kenya. arablethe nonfarm to land in the world, when -- theture is demographics are strong. urbanization is happening. discretionary income for the first time, and growth of the middle class. we had huge sectors of the
population, both business and personal, that are unbacked -- opportunities. megan: hasn't been as easy as you thought it would be to get into that market? will it take longer than you originally thought? bob: i would not say it was easy. we raised equity with the idea that we would be more welcomed by heads of state and regulators if we have permanent equity versus private equity, which has to be returned to lp's. that benefited us hugely. we were very welcomed. in the first year we did for deals -- we did four deals in seven countries. zimbabwe, mozambique, tanzania. it was closed and we were open for business in five months. that is unheard of.
to get a banking deal that complex closed with all the regulators and branches open in five months told us one thing, that africa is open for business. they want investment, but not just investment. they want operators, people who can come in and develop for womand banking businesses, for the agricultural sector, for the natural resources sector. it is fun. it is a lot of hard work, but what is really important is that it is open for business. not many emerging economies with this potential allow foreign investment in banks but also the majority ownership of a bank. david: let's stay on the subject of china's relationship with africa. we have a twitter question. the role ofwhat is china in the development of africa? you must have seen china. want to say they are all over, but they are all
over. if you think about the roll of chinese banks, it is not the same as our investment in bricks and mortar and franchises. what they are doing is the chinese banks are following compliance into africa. it would be to follow your customers. one of the impacts that we have seen is that the chinese companies, particularly state-owned enterprises, come down to africa fully financed. the competition from the african businesses is difficult because they struggle to get financing. the connection between chinese banks and the state-owned enterprises has made it a positive experience for the chinese companies expanding into africa, and frankly they have had a competitive advantage over the african companies. stephanie: when you talk about the deal you put together and permanent capital, five
different countries, those are five different governments you have to deal with. how complicated is that? are they really partners for you? there are so many issues we have seen in emerging markets in the change.ause the rules bob: within that, we have targeted 14 or 15 countries that are critical. probably 90% of what would be the banking market. certain countries, because of the government or policies that , and theret consider are other countries are challenging. example.s a great it could be huge. matt: when megan asked what the affect of china was on africa investment, i looked and we have really rich data on private
equity investments. if you zoom in, you can see the blue line is the target for fundraising. the gray line is what happened. funds than lot more private equity wanted to use. in q3, only about half of the $5.2 billion that private equity wanted to raise. there is so much interesting data that you can parse through. you can look at funds raised and see the different strategies private equity has broken down by regions in africa. here you go -- growth is a big one. real assets is a big strategy. an amazing array of private equity information. megan: what is your next move there? what are you eyeing now. you mentioned fin tag, the mobile phone. many do not even have smartphones. where do you see the next move that you are going to make? bob: the first step was the
vision. the second step is, can we get the deals done? we hope by the end of this year we can announce two more transactions. what was most pleasing to us this year, we have six months of running the banks that we closed. is first six months, loans and deposits were up. the quality of deposits were up. nonconforming loans were down. i think we passed the third key test, which is can we improve performance? the next thing, can we bring things from other markets -- mobile technology, credit card technology, capital markets platforms, things that will be massively innovative in africa. but i am out of time. david: thank you for being with us. coming up next is penny pritzker from washington. ♪
europe. and the not so friendly skies. united continental holdings the active ceo but questions remain about the airline's next moves. ♪ david: welcome to our second hour on "bloomberg ." stephanie: we are about to step it up. here with us, the chairman and chief strategy officer of wl ross and company. bloomberg senior economics correspondent. a lot to cover. let's get you some first alert news with vonnie quinn. a day of ceremonies for the chinese president xi jinping. .e was greeted
buckingham palace. the prime minister says she will announce $40 billion worth of deals and investments. plus the conservatives and prime minister out of power. about 184 seats in the house of commons. argued they need a deficit spending to get the economy going. new warships for $11 billion. the allies want the u.s. to help them hurt -- improve their defenses. after a nuclear deal with iran. now for a check, markets, here is matt miller. take a look at futures across the board for not a heck of a lot of movement this morning. the interesting thing is to follow what is going on in the
earnings market. earnings coming out all day long to also, a lot of dealnews. keith meister last week joined the board and he argued he wants to break off the chinese is this -- business. they officially announced they will be doing that and you can see the share is up 6%. take a look also. we have been looking for this deal for a long time. we thought micron may be a buyer. we knew western digital was looking at it. finally weight lost her -- weight watchers is getting another boost. itselfl do the program and share experiences with us. barclays has now raised its rating on weight watchers to equal weight from underweight.
i thought that was interesting and i'm glad they did not raise them to overweight. price of thek the stock went up 100%. got it for six or 7% per share and a double. david: from oprah winfrey to the fed. it seems like the federal reserve has been inching for a long time. inch worming. fed president john williams said more adjustments could come in the future. >> maybe we do raise interest rates. if necessary, we could use the other tours -- other tools. david: beyond what you think the fed may or may not do, you are
.nvolved in business is janet yellen says she is data dependent. >> i do not think there are any data precise enough to find two -- fine tune. it is trivial. they have exaggerated the importance. if you look at all the pr that have receded it, you would think it is at the end of the world. if that is all what is keeping the economy going, we have got nothing going on. stephanie: what is standing in her way? fed says their data dependent, they have always been paired it is just a matter of pulling the trigger. matt: paper came out not long ago positing the theory that the natural rate interest is negative 3.1%. if that is true, the rates are already too tight.
where do you pay the natural interest now? >> if it is a negative interest, we really are in trouble because that is not the dynamic rate growing economy. returns have been pushed down in part because we have been systematically subsidizing at the expense of savers. at some point, the lack of savings will become a very national problem. shipping is doing fine. rates have multiplied in the last year or so. it is only logical there is more physical demand.
plus in shipping, the largest single cost is over fuel. if you have a happy circumstance that your physical demand is up, then the cost of your main expense is down and that is a good combination. stephanie: what do you believe is driving janet yellen's action or inaction? is it the u.s. economy she should be potentially looking out for. after she is out of office, obviously, that is on one completely and of the spectrum. >> i do not think they are that well organized for one thing. she has to those mandates, one is keep inflation under to present. that is not a challenge. simulate is to employment. always more concerned with being sure she can assimilate
employment then she has been about inflation. later, she could go back into recession. what are they going to do then. that is why they should have raised it already in september. they've got to start somewhere. one of the problems of the extended recession and recovery has been met people are saving and deleveraging. they do not act like they are feeling punished right now. collect the act of deleveraging is because there is capital spending. corporate profits are pretty good and known wants to build a new factory. if they do anything aggressive -- not the new building of the
>> it does not say much good about the oil price. matt: i am be will do by this. stephanie: only bloomberg could give you that sort of amazing data. when we talk about spending and we do not believe we're seeing corporations truly create more by building out the business, do we blame any of that on -- just last week when david and i sat down with the ceo of walmart, they are trying to go through a major overhaul and what does wall street do? punishes them. if you are running a company today, how can he make long-term investments good for your business and your economy when you have got shareholders being delivered to me tomorrow? wilbur: walmart is in a different position. they have an enemy called amazon. has complicated their particular picture more
than anything else. in general. walmart members are quite an international company right now. world, anational combination of brazil's problems and chinese problems. it is a takeoff on godzilla. we will get into godzilla and a lot more. we are just getting warmed up with wilbur ross. we want you to stay with us and get involved. tweet us your questions and then dwight anderson will be joining us. where does he see oil going? join us on twitter. and again, puerto rico will be on the menu. crisis, will
vonnie: welcome back. will spin off one of the most valuable parts of its american business. spinning off its china business into a separately publicly traded company. it gets about half of its revenue from china. they want to buy the team health holdings. $5.2 billion in cash in stocks. they rejected an offer -- offer last month. then, the largest market outside the u.s. is to expand. tim cook says the company could
have two dozen stores in china. apple's chief for leaving the expansion. >> we are on a rapid expansion in china. opening and we are by mid next year, we will have 40. says apple needs to cut 6.5 million pings of fibers. spotify for comparison has 20 million subscribers. i remember thinking i would never leave itunes and i feel like i do not even know what it is anymore. jack lew meeting with puerto rican stakeholders at a white house roundtable yesterday addressing it fiscal problems. what legislative changes could congress make to fix it? we are back with brendan greeley.
withweek, i set down donald trump, very outspoken about what he thinks about what the united states should do with cuba or mexico. i asked him what our obligation was to puerto rico. take a look. >> puerto rico has got huge problems. massive debt. do you want the united states to come in and take it over? and they will not learn what to do. they need to fix their problem. is puerto rico not our problem? is obviously a territory of the united states so in that sense, it is weird but i think donald is right that the fundamental problems are internal problems. they have to change electric power generation from high cost oil to natural gas and that will cost a lot. they have an inefficient power and because of the jones act, which requires american ships and american cruise to deliver
that field because puerto rico a territory, their costs are inordinately high. the largest by far is the state government. that has to change. way too much of the population is working for the government. the third thing that has to change is the huge unfunded pension liabilities. those are things that were all .omestically generated does the what extent federal government their responsibility? there is a triple tax deduction which allowed them to borrow at low market rates, much cheaper rates, which allowed them to fund public employment and things for a lot of years. we have been an accessory to this, haven't we? for a while, there were
big exemptions for puerto rico so pharmaceutical companies and many others built up a huge industrial base and when the credits went away, the productivity of the workers and all of that was apparently not satisfactory. there is one thing they cannot avail themselves of, the basic chapter nine bankruptcy in the u.s. on the continent. why not extend them the same that everyctions other state and city has. i do not believe it is the case states can file chapter nine. it is the case that cities can. the samebeing treated as the equivalence of the state. you have not seen any state filed chapter nine. illinois may be a good candidate and they let puerto rico do it. david: why not bring the
bankruptcy laws in line with the continental united states? the main effect would be to raise the interest rate they have to pay on their bonds. part of the reason those bonds are views -- viewed as safe is it is supposed to be a balanced budget. tricks ton accounting avoid truly balancing the budget , not making it payable for the day after the fiscal year and stuff like that. i do not think the right solution for puerto rico would be a bankruptcy proceeding. it will be hard to top the last chart. matt: i want to show you the difference in yield terms between puerto rico and greece. what a difference being part of the eu makes. 10%, 25%, this is what we are
seeing in the start of the yield curve and puerto rico. could end up looking like greece eventually, which does not look so bad with three-year debt trading at 7%. doesn't this chart say the markets were basically right ? matt: you mean longer-term? david: they're basically saying we think this is going to work out. supporting donald, i think. matt: the markets believe the u.s. will eventually bailout. let's get more specific than just bailout. there is a possibility we could step in as you do with greece. act, isan the jones there anything congress could do to make that procedure easier, to just give them the tools? wilbur: they still have available an out-of-court
restructuring and they can still do a swap of bonds and a lot of things. they have not really shown that will tower to do much. you have the governor get on tv and say, we have too much debt. that we are now using greece as a role model for puerto rico strikes me as bizarre. stephanie: the governor was almost host. position are not in a to ever file bankruptcy. it is almost as if he did not understand how to work. let's turn to greece for a moment. banks are restructuring. do you see this as a buying opportunity or they are based just trying to stay afloat so the greek he will have somewhere to put their money? areur: i think the banks actually a lot better shape than people believe them to bp or including the ecb is being way too pessimistic in its testing
of the banks now. up ints have been going the rope -- in the most recent months despite capital controls and the fact people cannot be sure they will be able to withdraw the money. that is not a sign of collapsing economy. isn't it justified for the ecb to be extra cost us -- extra cautious. overly cautious is something else. too much capital put in is a big burden on the eu taxpayer and eventually on the greek taxpayer. you have the imf saying greece .lready has too much debt why put more on it for an unnecessary bailout? turn to company issues. the corporate dilemma in the united states, united named its general counsel as active ceo. the chief executive officer had only been there a short time, suffered a heart attack last
week after a little more than a month at the helm of the world's second-largest airline. kim is a managing partner in the executive search firm joining us now. thank you for joining us. let's get your take on what is going on. it is fairly unusual to name the general counsel as the active ceo. >> not at all. when you look at brett's background since he joined united in 2010, i think he , thed in december corporation has given him broad responsibilities other than just the general counsel role. foras set responsibilities food services, customer experience, real estate, security. he has been well trained to step in. we know when we look at hedge funds and asset perspective, a key there is a huge negative aspect if you were to lose the wilbur
and if he was not in his possession. investors were not feel comfortable. in terms of the corporation, the ceo of a major corporation like this, does it matter that much if you are an investor? wilbur: the interim ceo is just a placeholder to keep things there. normally as an intern, someone who is not really a candidate for the permanent job, just meant to be a placeholder. what they'rea doing but it would not be unusual. david: i wonder how much of this is because united has legal problems on its platter right now. that is what caused the change recently. >> i think united has made a good decision to put someone internally in this role. put the steady hand at the home. little or no learning curve. i think it is the right decision.
the interim ceos, when they come from inside the organization, they move in the role permanently. is premature to speculate about any of this because we do not fully know about the incumbent ceo's's prognosis and i think we need to let the time is able and willing to move back in the role again. did you not follow best practices having someone groaned and ready to go? collects there are no best practices. outnancial bolton was put in 2009 that talked about planning in general. after steve jobs passed away, they revisited the success and planning issue and decided not to create a specific policy
unclear.t was there are no industry best practices. united hasok at what accomplished in the next five days, they have done a remarkably good job under the circumstance is. you have to let the medical team do their part and provided vice not just to the family but to the corporation. stephanie: thank you for joining us. wilbur, thank you for your time. brendan, more with you ahead. ♪ the only way to get better is to challenge yourself,
"bloomberg ." i like that jacket. start with the first word, and we go to vonnie quinn. linked to the nuclear disaster. after the synonymy, directed in 2011. about several thousand workers are still there. political comeback in kendrys history. .he liberal party they ousted stephen harper, adding almost a decade of conservative rules. about 140,000 seats in the congress is the biggest ever. to get the economy going. jim webb may drop out of the democratic race and run as an independent. hero served as a
senator from virginia. he was the secretary of navy under president reagan before that. we are joined now by the secretary of congress after five ares in 19 rounds of talks 12 to 15 countries reached a historic deal. it needs to be approved by the various legislators. joining us now from washington. you have a lot of your plate. let's start with the specific. thank you very much. and welcome. us where we are with the specific deal. when will it be signed and what is the prospect that you need? >> the negotiations were just completed and now what is happening is the teams are putting the final touches on the language and then the documents and the text will be released and hopefully the next couple of weeks, it will be made available
in the united states to the public and to congress. time of will be a review and it will come to the floor for a vote. number of a candidates from both sides have come out with very negative views on ttp. how much will the negative attention affect the ability to get it through? >> i think we need to step back and recognize with the agreement does. it is an important strategic agreement not just for the ninth days but for the world. with 12 agreement countries, 40% of the world's's gdp and it creates market access between the 12 countries, eliminating 18,000. forou are a manufacturer the united states, your ability to sell goods goes way up. it has labor and environmental standards that we have in no other free trade agreement. the highest standards in the
world applied to these countries. it also has a whole chapter devoted to small and those-sized businesses so businesses not only could access those markets but also can have an easier time getting their goods to those markets, making it easier to get through customs. has so an agreement that much to offer for american business and american workers. i am confident we will get this done. stephanie: stay with us for a moment. we need to turn to matt miller with breaking news. matt: we are getting housing starts that continue to rise. 1,206,000. gain compared to the 1.4% gain that economists in the survey had looked for. i got itee the trend, back 10 years. look at the trend up. housing starts continue to
recover. news int the good housing. you have fast-track authorization? passed tpa, which provides a set of rules and says forave to make the public about 60 days to the public and about 90 days for congress. it will be sometime hopefully the first or second quarter of next year that this will come to the floor. i think it requires that the countries approve it. it will be sometime next year. >> there are people already protesting the trade deal. how will the administration get it passed before it is over? >> we are negotiating now.
the teams are meeting, a negotiation with the eu on a new trade agreement. week. be in germany next one of two things will happen. we are discussing the terms of the deal and the second is we are working with european counterparts to make sure there is a better understanding among of theopean public benefits of the european and american businesses, workers, etc. stephanie: republicans had originally supported the ttp and they now say final revisions fall short. >> i think one has to look at specific sections of agreement. there can be one or two things -- if you look at the
transpacific partnership, what americano enhance the companies to access the fasting growing market in the world, it is an extraordinary agreement because not only does it give us raisesaccess but it standards for environmental protection. extremely important for making america more competitive. how do you take the ttp as it exists and then drag china into it? >> conversations with china about trade are really focused on a bilateral investment treaty. we need to intended to work as we agreed with the chinese to try to accomplish an investment .reaty david: talk to us about cuba and what we can expect?
extraordinary visit. there are three purposes. first was for us to get to know our counterparts. do notlmost 55 years, we know the leadership of the cuban government the way we know leadership of governments around the world. that was one purpose. the second was to understand how does their economy work? import, house you export, and how our goods distributed around the country. the third was to have a regulatory dialogue here the president created an executive foron that allow potentially a greater trade but without better understanding how the economy works, we cannot necessarily put in place regulations that would allow trade that could benefit the cuban people. that would be allowed given the embargo in place. stephanie: clearly the cuba story is a beautiful narrative
and an extraordinary opportunity. in terms of real trade and the business opportunity, how they is it? inwe have to put cuba perspective. an island of 11 million people. there is an enormous opportunity there. the cuban system is a state run economic system. trade to do more and more , they will have to make changes and we will have to see the embargo eventually lifted for this relationship to reach the economic potential it has. the only way for david and i to really understand what you're us hang is to head back to cuba and do a showdown there and havewn you join us. a quick look at the cuban market in less than an hour right here
from the opening bell. new york futures are slightly after a fluctuating disappointing quarterly report from ibm. more than disappointing. it is massive. we will take a deeper dive into ibm. that better than forecast results. overseas, a quick look at europe, european equities slid as the ecb survey had credit as companies eased for the sixth straight quarter, dampening the case for any increase in stimulus. they like to vegas laggard on the dow today. quarter sales -- the people that i know do. it is the world's is publicly traded hedge fund. luke ellis just in from london
vonnie: welcome back to "bloomberg ." a better month than expected in september. the second-highest level in eight years. the level of multifamily homes is up 18%. the market capitalization of almost $16 billion. a deal could be reached this week. are nowates in columbia investigating the cheating scandal.
some say vw might buy back these affected cars. stephanie: the world's's largest publicly traded global hedge fund issued a cautious outlook in august and it where do they stand now? joining us now is luke ellis and brendan is still with us. we want to talk about your is this model first. you acquire at a time of market volatility where we see some funds heard, like carlisle, truly out of style, a hedge fund strategy not working. what does it mean for you? luke: we are interested in building out the numbers we have got in the place. we deal with all of the infrastructure and the more he keeps his have,
standing -- keeps expanding. why do you make it work and look at a private equity firms trying to do this? is it because it is not the core strategy and not asked tease? luke: i do not want to comment on why other people cannot succeed at it. deals to look at a lot of in order to see the one that we want to do. we looked at hundreds of transactions to work out. you can find a lot of things refiningy appear to wants with a have actually got off and where the price is reasonable is how it works. david: talk about finding that talent. one of the places you're trying to find it is in the funds that look at the data. that is a completely different kind of hiring you have to do very how do you find those
people? >> recovery across a wide spectrum. the reality is mostly we are hiring people from universities, from places where they run their own funds, and also from other uses of data and so on. david: where is the alpha in the strategy? luke: there are different sorts. in our business, i think we have got 70 models. there is not a single alpha. we believe there is excess returns to be generated. a big user of momentum across a number of markets. we work to diversify. we have got an equity business up in boston that is very traditional value across momentum. it uses very traditional evaluation metrics. the great thing is you are able
to look at a lot of different measures so we can look at thousands which is all an individual could do. >> su look at the possible relationships you could enter into, is it based on their past track record, their business , certain synergies and connections with what you have? take us through. first and foremost, we have to like the people and they have to buy into what we do. we have an open culture. they canthe reason is talk to a lot of different fund managers with different approaches. to like the people. i have been looking at hedge funds for 20 years. you learn how to identify skills .
there is a certain amount of always judgment in that. you need a process which is repeatable. stephanie: your growing assets under management, in the new platform, your only charging 100 basis points. positive for investors but what does it mean for people asking for a whole lot more? different products are available at different price points. notanswer is when we run only traditional equity products, you have to run them ,t a traditional market pricing but in the product, you have a different order of magnitude that you are giving people and so the pricing is different. in our business, if you want the thing that has all of the alpha we could get, it comes at a significantly higher price and they are happy to pay that. stephanie: traditionally come
investors are willing to pay because back in the days of original hedge funds, there are getting 15% returns. in the new world, it does not seem to be option to be option. why pay that much? luke: in a world where you have got 628% nominal growth and you're getting six to 10% out of equities and bond yields at 5%, in order to deliver something superior, you have got to making 10%. today, the returning equities is pretty low. is, can we make 700 basis points? doesn't that make the argument, just go for the product where the fees are much less because overall, return expectations have lowered? his: if what you want plane, i would not pay to in 24 it and we would not tell it for anybody.
a terrible it is thing to try to pay excess fees. stephanie: is a time when very few people are returning significant alpha. we think we can return consistent alpha that gets the client. that.nk we can deliver a reasonable proportion, a metric you need to look at. i want to look at macro risk or macro alpha. you just got back from the u.k. and the bank of england revealed it is making contingency plans. you came here from u.k.. is the bank also making contingency plans? as a business, yes. we have got contingency plans
for what happens if u.k. leaves europe. we have contingency plans for all sorts of things. will it happen? not sure. a long way to go. it looks pretty tight in terms of outcome. let's see where prices are than it one of the terrible things is predicting what the trade you , 12ld have on in 18 months months after that, that is an easy way to look stupid. stephanie: he mentioned macro. we mentioned one of the biggest metro -- macro investments shot down. to investment opportunity gain possible investors or is this a warning do not be in that space. if guys like that cannot make it, who can? when you looke: at any strategy, where the outcome is, it is modified by the frequency of decisions.
if you have a small edge, a lot of trades, you can attract good return. stephanie: even though original discretionary macro investors -- the funds >> we do not live in the 1990's. was easy to make money back then. but it was different. given the amount of information available, back then, there used to be 10 people who could really understand what was going on in central banks. it guys putted -- publish simultaneously. you cannot have an edge in that stuff and you cannot make many decisions. you do not change her mind. stephanie: different strategies, what you make of a glencore situation question mark -- situation? that is a different business to there are interesting opportunities to make money through trading. light comingve got
than erik schatzker spirit i will not even a knowledge him while he gets up on his throne. i will go to dwight anderson. there you go. erik: improvising here. anderson iswight here. we talk commodities. who better? erik: one of the world's best-known and most successful now and then. david: that is why you are here. great to have you. stephanie: news? you.e: thank syria's's estrace in killed 45 people clearly human rights group said the headline targeted last night. their ever commander founded a three syrian army is reportedly among the dead. the groups received weapons from the u.s.
like father, like son in canada. the liberal party swept into office. his father was the former prime minister. china's's president was greeted by queen elizabeth today in london. saying it is the first time he was to visit a person in a decade. david cameron says is ready to make deals worth billions of dollars during the trip. matt miller is here. seizures are slightly down after three days of slight gains. not a lot of movement. it is really an earnings story. seven companies reporting. this get to some of those starting with ibm. you can see ibm is down, disappointing. it missed on revenue and lowered its operating outlook to as much as 1575 per share. real problems as ibm tries to
shift its business focus. united technologies also coming out with a big mess on revenue. it has decided to buy back $12 billion worth of shares. to $16gs the total vivax billion through 2017. they are doing the best they can to keep share prices up. the dow jones industrial average is down 20 percent year to date. earnings growth and strength today, to 93 per share. we were looking only for 226. property, the only insurer in the dow jones industrial average, putting up a little bit of again today. back to you. storiesime for the five that matter now. we begin with yum! brands. it will become a franchisee of the parent company. exclusive rights to you may know
this was not exactly young's idea. a carl icahn protege push for a spin off saying it could boost the value by $7 billion per stock. way up in premarket trading. almost 5%. dwight anderson. does this surprise you that activist and ventures -- investors, hedge fund managers can wield as much power in corporate america today as the likes of george soros, once wielded in the macro world? dwight: you take a look at some of the inefficiencies and the fact that you can actually hurt pressure to get changes is a wonderful change. saying he longer believes in discretionary macro and it is simply because of all of the information we have because of technology. back with george soros, there
are a few guys and it was much harder to get that information. that due torise you technology in the state of information, we are now leaving the markets? definitely correct you have greater transparency and he is right that it is hard to make honey. you have to hire investments to get the edge. you have to go more micro. we have people in the ivory coast counting cocoa trees. is the weight creates a greater investment and a greater overhead and that is the way you have to extend extra effort to get an easier advantage in the 1990's. stephanie: david and i will have to do a show from cuba. come it took more than four days but finally come united continental holdings were decided who will run the company while the ceos have is from his heart attack last week. bret hart will be the active ceo. still toos it is
early to talk about his prospects for recovery. it who, how important is the ceo is, or is it the overall strategy of a company? >> we start with a ceo. if you do not have a confident ceo, the amount of money they waste blows away the industry. the amount of money they can waste blows the .rofitability quite that is why i get to the board. the board has to decide whether the ceos the right man or woman for the job. the ceo can make or break the company but how closely do you pay attention to the person deciding who the guy or woman will be? dwight: you take a look at a huge number of companies where they made unexplained acquisitions. coreould argue when probably in terms of their discipline.
>> one of the world posse's most valuable pieces of real estate is changing hands once again. blackstone is buying the peter cook for village apartment complex for $5.3 billion. right now, the 80 acre property is held by bondholders after blackrock stopped paying mortgage payments back in 2010. for those of us who live in new york, this is a huge chunk of manhattan down on the lower east side. it did strike me, they bought this thing for 5.4 back in 2010? and they basically walked away from it. it's posted be quite a value pisa property. are you a milieu with it question mark >> i have friends there and restaurants but do not know the deal in terms of cap rates and everything. stephanie: deutsche bank mistakingly sent $6 billion to
u.s. hedge fund -- hedge fund. unfortunately, it was not white, before realizing it was a mistake and recovering the funds a day later. it is more a case of braden damage. either way, did not work out well. back in june, a junior member in frankfurt mistook growth when profiting -- processing the trade. they had to report the mistake to the financial conduct authority. biggie, is mistake no the fact that mistakes happen this day, does it give you pause in any way of who you deal with? what have banks done since the crisis? cut jobs right, left, and center. with this have happened? sadly yes, there is always human error. can.ry to learn what you if the long things were sent to you.
when $6 billion shows up, you have to return it. or run away fast. it is a big number. the numbers you are getting from the dealers any better or worse? it was a little worse because so many people have shut down. a five-day bear market due to the capital intensity rules. a lot of people have closed commodity related areas. in terms of the quality of service, the number of intelligent people covering us. stephanie: hold on. [indiscernible] david: in the market or out of the market? i would like to have them out of there as competitors. stephanie: do you think the research makes a difference anymore? publishing research. when you say intelligence, who is left on the street actually providing you research that helps you invest question mark -- invest?
dwight: there has always been a skew. the very limited few who do independent work there fewer people are covering it, then that group of small and independent intelligent speakers are going to be fewer. the salespeople also lower. stephanie: big banks wipeout publishing recharge -- research? so we hopelike it not. we pay for the appropriate amount but the best execution is what drives our choice. past on bounds over the decade, has the cost of research to you gone up or down? dwight: probably up in that we thought we would pay more directly versus what was implied. let's move on to number five, a horrible quarter for switzerland's watch industry. china and the u.s. are dropping in part because of smart watches like the apple watch.
the big reason appears to be the swiss franc, by him of 20% back in january when the s&p iandoned its paid to the euro do wonder, if we could draw a connection between what is happening in the currency world as it concerns watches and what happens in the currency world as commodities. how much of a disruptive factor is the volatility in currencies in the commodity world? >> it is massive. if you look at the largest currencies, they are huge with billions of dollars. they will trade the underlying commodity based on the currency. if you look at like coffee or three out for anyone they could view the largest changer in the driving force. erik: let's take it outside of brazil. to a degree is that affecting things like demand in china. to a degree that affecting slimy oil market dwight: uncertainty
creates hesitation of purchasing decisions. could lead to slower demand or huge changes. especially look at what happened in switzerland in january. that in the cost structure and where you put facilities make them hesitant to move forward. appetizer it was an we are just getting started with twice and we will get so much more in the next hour. commodities guru to white anderson is here for us the whole hour. send us a tweet and stick around. ♪
verizon top estimates in the third quarter. nation policies largest wireless carrier which is three video services last month. a better than average month for homebuilders. in second highest level eight years. the highest multifamily homes jumped 18%. a new business recipes cooking at yum! brands p the company will separate its u.s. and chinese units. it took more than half of its revenue from china. yum is the parent of pizza hut and kfc. matt: and taco bell to i will pick it up right there. deal, its doing a seems, with western digital. we thought micron might take it. it is not and the micron is losing out there. .p 7.4% sources tell bloomberg news it could go from 80 to $90 per share. western -- when western digital is done with it.
terms of thek in share price action here. you can see we have three dollars and $.35 gain. keith meister, who pushed for the change and got on board last at $16 to it could yum's share price and could boost it $7 billion and some of that has been price instant he got on board. i finally want to talk about a smaller company, the fresh market, it looks like it could get taken out. credit suisse has joined the bandwagon. deutsche bank was saying that yesterday. there is a stock to look at for possible m&a action for we will take a quick break and when we come back, we will talk let cord with dwight anderson. glencore with white anderson. ♪ -- dwight anderson. ♪
stephanie: it has been a painful couple months for glencore. record lows in september as investors worry about liquidity and a slumping commodities pricing. glencore responded by seeking to cut his $30 billion debt load by one third and shutting down. the lastre down 30% in month. the worst performer in the u.k. benchmark stock index. the chairman of bloomberg lp, the parent of bloomberg news, is a senior independent nonexecutive director a glencore. jam.t, this is your commodities. david and i sat down with another board member, the former morgan stanley ceo. take a look. >> they had a balance sheet with too much debt on it. we raised in offering. we had begun to cut back on some. you have seen what happened in the dock in the last few days. managers who fun short the stock and play with the cbs, is exactly what
happened during the crisis. it is fine for them to do that. creates a lot of volatility. stephanie: our fund managers to blame? you put yourself in the position where our numbers are ordered billion dollars, and you put yourself in a vulnerable position it makes you path dependent. if you track the number of bonds that are insured, you are one point 7 billion in july. as of last week, 2.3 billion. if you look at the debt on 40 billion, they have one $.25 billion -- $1.25 billion. it was yielding 32.3. i would argue he bought the worst risk-adjusted instrument. if they're going to make the payment in the next week, and annualized return of over 30% in
a much better risk measurement. the measurement is only trading $.77 per dollar. the equity is a very different risk profile. stephanie: he went long fundamentally, he went long in terms of debt. erik: he made a fair amount of money on that equity. $650,000. a most doubled. stephanie: should executive in the country or nonexecutive board members be able to traffic in the stock at a time when they're having extreme volatility and material changes to the scope of the company? dwight: if you're in a time when the boards that you are clear, then that is allowed. erik: he did it pretty publicly. they were really good traders, as i understand commodities. really good and smart and they took a lot of debt and then went
into the mining business. is that the story of glencore? dwight: as long as it is well-managed, most important credit risk, getting volumes of getting control the volume spear the former ceo, the person who a greatcore, set up business model where for one third of the capital, you got 100% of volumes. a phenomenal way to capture the volumes at very good marketing volumes. third to taking on all of that, i would say you are 100% correct, it is not the trading business. of qualityange assets with a bunch of debt and that makes you vulnerable to the cycle. erik: have you seen glencore become any less effective as pressure on the company has increased? dwight: we have not seen them be
less effective. they do a joint -- they also do a good job cooking. their different ways in which you can be obvious when you purchase something and publicize it or you cannot. they arrange private contracts with original companies and rather than going around enclosing it, that is a culture that prizes confidentiality. erik: is the strategy combining, trading with control, as valid as it was when they went into purchases? dwight: everything gets into what price you pay, and what your capital structure to do it is. is generally believed they had the opportunity to sell at strata in the first quarter of 2008 and that fell apart because they did not want to lose control of the volumes. it is interesting to contrast q1 of 2008 when the bank but the
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>> welcome back. you are watching bloomberg." >> thank you paid a congressional committee will decide whether guards will be assigned to donald trump and ben carson. asking for secret service protection. authorities will not see other candidates made requests through the house back in session in washington. republicans asking paul ryan if he has a change of heart over being speaker. he discussed it with confidants during the weekend recess. is not interested, john boehner
will be asked to stay on through the end of the year. news organizations say they should not have to pay for covering the republican convention. charging a $150 fee. those are your top headlines. >> thank you. news organizations pay a lot to cover those conventions. trust me. more than $150 a person. dwight aniston still with us. let's talk about your investment and missy asked about your investments. wight: oil has been an oversupply and will be in surplus the next three to nine months. the supply decisions were made years ago. the decisions left december will affect 2018, 2019. we expect that to build into next spring. the peak shift probably be in
the second quarter. >> are the cuts you are seeing now in capital investment to giveon sufficient underpinning to the market? dwight: i think yours production will be down half a million barrels by june of next year. the lack time for most of the projects is longer. --t is going to suppress that is going to affect supplies forward. but not enough to balance the market in the next six months. the amount of production associated with long-term capital spending and the amount of production that can come online click the, let's play an excerpt of the cohead of commodities research had with jon ferro a few days ago. thehere prices rebounded to 60 dollars a barrel range, high yield markets opened. the energy equity market open.
cash flows increased such that drilling picked up. what is unique when you use "new oil order" is the fastest cycle nature of shale. in the old days, it could take you 10 years to build a deepwater platform. or four to five years between one you can make capital and make production. shale, the number is 14 days. jeff says andat provided he is right, you share bet you, should we now talking less about the floor for oil and more of the ceiling? because this production can restart as soon as crude cross a certain levels? dwight: the answer is it depends on rates of demand growth and what is causing the price of oil to go up. there is a lack time. you are talking happened million a 93ls, but you are in
million, 94 million there'll world. an individual decision for the arctic could bring out 500 barrels -- 500,000 barrels in itself. those are the decisions being canceled. erik: but some of those decisions do not result in production for a decade. dwight: that is why you're 17 thousand and 18, 19, 20. erik: so we see shall continue to drive the market? dwight: shale will be the biggest desk quickest responding. come 2017, the decline rate will catch up. itphanie: we talk about what means for the oil industry, but you started your career now on wall street. you were working in a paper plant. you understand how these businesses operate. help us understand oil prices given where they are, what this means for towns like houston, texas. for these suppliers from an. employment standpoint dwight: it matters more to odessa to
houston because houston became diverse after enron. in terms of service and supply, that is where it is hitting home. calming down in terms of response because of the longer contracts. they will lack coming back up here they are firing thousands. you see the individual decisions being made affecting the small towns even more than the big. stephanie: how and where are you investing? the aggregate world out there, you are talk thing even though the short-term and media term will be under pressure in individual commodities, mining and the like are at relative absolute lows in valuation. you look at companies -- like
mining in diamonds. diamond prices are down, in due part to the chinese crackdown on the strong dollar. but the dimming and core, it is a little under a 9 million market cap. in your looking in the mid tween's to make 20's free cash flowed yields. those are the opportunities you do not get often. if you roll forward to a year from now, as he stalking has gone through, inventory changes, we think prices go up. at these levels, stocks could double. prefer stockld you to the actual commodity, in this case diamond? dwight: i like diamonds. i am married so my wife has one. , it giveso liquidity you the proper duration. stephanie: one of the more
expensive diamonds one could have. >> when it comes to the commodity business one it is oil or diamond, are there structural changes on the demand side being rocked by the low oil and fuel prices? whether it is consumer spending, what cars you drive, are you seeing long-term structural changes? dwight: we see structural changes in demand and supply, in part because of some of the foreign exchange rates. growth iste of demand slowing materially. the composition is changing materially pay they are coming out with their five year plan that shows huge changes on what the economy will do with pollution. that is changing what they consume and how quickly. that is something that has already occurred in parts. that will rewind for a while. the devastation over the industry has brought prices down. erik: when you look at oil or diamonds, in this case, your
view is predicated more on what happens on the supply side than the demand? side is morey measurable. at the moment, you can track what is going on for that. in terms of demand, it is a forward calculation. we care -- a supply side change -- this is what glencore has done -- can support that for a time but does not cause the upwards price change. stephanie: you said you liked dominion diamond. what else? dwight: something like mountain province. you also asked about what is being rocked -- people do not appreciate how much the margins have gone up in the countries that have imploded. some of the agriculture companies in brazil have been seeing record margins. whether it is a company affiliated on the board, these are companies that could see record free cash flow and record margin returns the next 12
months because of the cost of the real. because export prices have gone down through their price relative to the dollar. dwight:. yes erik: carry go back to the point where the efforts of companies like glencore to control the prices and commodity markets do not work? the case, because saudi arabia is experiencing something similar with its the shalepush some of producers out, maybe inflict pain on rush or iran, it is not working for the meyer. dwight: the reason saudi did not a supply growth. if they shut in, you would get continued supply growth. the demand side is different. if you look at what is going on
1992ing, in the 30's, markets, people tried to coordinate the supply of think. -- zinc. work.something that can it makes sense if the individual bleeding cash. but it is something we have rarely seen. stephanie: mass, take us into the bloomberg terminal. and how about a little market update. matt: i wanted to point out to point, idwight's drafted brent crude versus total opec supply from 12 opec countries. you can see they tried -- they pulled it back a little recently, but it does not help. the supply and demand a effect on price. let me look into my terminal and
the sea. i like to use the imap function to see what stocks are doing. we should see how the market is trading now. but telecoms and utilities are the only gainers. itn energy stocks the big losers . a roundup of some of those. rambus had a different -- had a disappointing fourth quarter. 24% from this commodity producer. harley davidson produces one of my favorite products out of the u.s., but it will not make as many because there is not the demand of their now and margins are shrinking. harley down 10%. we will talk to the ceo tomorrow talkoomberg" when i will to the ceo of ferrari. surgeries11% and
releasing 500 50,000. -- $550 million, saying a leopold tobacco companies used to avoid payments have been closed. apple's latest tv set box goes on sale next week. tim cook made the announcement last night. for the first time, developers are being encouraged to make apps for it. >> time now for our value proposition. we zero in on controversial issues and still a little debate. we could do one expressly for dwight anderson. cycle, adity super live, dead, or myth? dwight: it has got to be dead. as aer it is a dead myth separate points. the last decade was phenomenal for the yen, for commodities.
chinese rate of demand grows of absolute scale of times was on you throw in the incremental hundreds of billions in, that created phenomenal prices. we are paying the price for it. the last five plus years, mining companies will have wasted $1 trillion. this applies coming on now. and then rate of demand dramatically lower and different. erik: do you believe in the long-term locality of the market market?cality of the in 1994, prices started out low and then he, as you can see, in the mid-2008's. is one oil surged. now you can see we are down to the levels we were at in the late 1990's or early 2000's. stephanie: when i asked jamie
dimon glencore, he was relatively unfazed. he said it is a commodity cycle. this is how it goes. dwight: it is a commodity cycle, it is how it goes -- i do not think all commodity cycles have cycle.e each commodity is cyclical. it is simple. prices go to hide, supply and demand reacts, prices go to low, supply and demand reacts. energyie: in terms of and industry, you think we are and -- we are in an oversupply market? dwight: we are in in oversupply market. looking at her, but that it is something that, at the moment, is tomorrow's story. erik: is that to say that we are -- i guess what the true believers will like to know is whether we will old highs again -- whether we will suppress
surpass the old highs. one of the things as we look at things arbitrarily because of what the dominant currency is in the dollar. some of this depends on where they are produced and consumed. like $150ething crude, to round it up, without a major events in the middle east is not something that is most likely. erik: but that's a place without a major event in the middle east. dwight: there was a tight crude market and a company going bankrupt that had derivatives out there. that last spike was people covering the positions from the bankrupt company. david: there are two numbers, price and total amount of consumption. the head of the central bank in england warned he think there -- you thought there would be a substantial disruption as we move into alternatives.
do you think that is far-fetched? dwight: i believe there is going to be a lot of disruptions next decade as we create a more balanced grid and set of supply that is noncarbon based. there will be periods of time where crude will stay low. and in countries like venezuela and potentially saudi arabia, that is a risk next decade, especially when you have an uneven output source like a lot of the alternatives. to five years,ee it will be more of a classic supply and demand reaction underinvestment and demand growing. stephanie: help us understand how you invest for the short term or the long-term. if we are looking the next three to six months, things feel negative. but you are talking three years, five years. how do you look in terms of investing? dwight: you look for companies that are lowest in terms of cost and also have the balance sheets
to make it. in general for most industrial metals, we have a negative outlook for the near term. something like iron or, a bulk. you will have to force more closures. you have more supply coming on in higher order. there are new mines in australia. that has to continue to force closures. and willis miserable stay measurable and will have to force closures and bankruptcies. there are markets that come later this decade. we will have to create an incentive like mining in canada. it will be with a solid balance sheet and great assets. erik: what about something with fixed supply. farmland? dwight: there is a diversified portfolio geographically, it is the best asset to own, run, and manage, because you get more every year. the average year to productivity
growth, and energy, you get depletion, but at least it is consumed. in a mind, energy is depleted and they recycle it. farmland is great. there are individual area's that can have weather problems and it tends not to get much price appreciation because you're doing productivity per acre. in terms of something you can manage as long as you have a little diversity, is a great asset. >> island bob diamond said that the 40% of arable land not far now is in africa. y disagrees? dwight: he is right on the map, but it is a hard place to invest in. stephanie: overall, would you visit these farms? dwight: just at home. david: next, our favorite moments from today. ♪
stephanie: welcome back. dan i say, i think this was a great show. look at our highlights. when you look to the left, private equity firms are growing to gargantuan sizes. that usek the people the term stephanie: shadow backing use it pejoratively. bob diamond is calling me stupid on tv right now. ob: regulators encourage growth below the level of the egg global interconnected banks. >> i do not think there are any data to fine-tune a quarter percent raise. i think the fed has ridiculously importance ofe this quarter percent raise. if you look at the pr preceding this, you would take it would be the end of the world.
is all keeping the economy going, we have nothing going on. oversupply isn an in surplus and will be in surplus the next nine to six months. -- six to nine months. we expected to build into next spring. the peak should probably be in the second quarter in terms of the surplus. diamond, wilbur ross, and point anderson who is still with us. we give you a word, no what comes to mind. china. >> growing. india. slowing. >> yellen. >> -- >> why are you backing these guys? dwight: there are a number of tanks and have grown up or had to be forced to leave the space. it frees an interesting niche. stephanie: ibm. dwight: my parents. stephanie: duke university.
dwight: wonderful new jersey school. david: jeb bush. dwight: good man. stephanie: hillary clinton. dwight: smart. >> joe biden. dwight: also in divisive. stephanie: who will be the next president? dwight: i waiting for your candidacy. stephanie:? dwight: twitterdwight: useful. i read it. stephanie: you listen but do not tweet. watch out, he is a tweeter. >> thank you to ospraie management founder dwight anderson. that does it for "bloomberg ." make sure you --
betty: from bloomberg world headquarters, good morning. i am betty liu. the fast food company behind ksc and pizza hut is goal in cold turkey in china. why yum! brands will spin off one of the most valuable parts of its business. the latest poll showing a big for hillary clinton. why joe biden has a big decision to make. in the nine-year reign of stephen harper came to a sudden and at the hands of young liberal party leader justin trudeau. is just another fallout of the oil market. are half an hour into the trading session. we go to julie hyman. i feel like i have been saying this the last few days.